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KARACHI:

Pakistan’s stock market crashed by 3.47% or 1,379 points, hitting a 30-month low to close at 38,342 points on Tuesday. The rising political temperature coupled with an economic meltdown, threw investors into a frenzy with most rushing to sell shares in a panic to quit the market.

This was the single largest drop in a day witnessed in the past seven-month. The bloodbath wiped out almost Rs200 billion from the market in the day, as market capitalisation (value of all listed companies) dropped to Rs6.134 trillion compared to Rs6.333 trillion a day ago.

The market has maintained a steep fall for the third consecutive working day, plunging by a cumulative 6%, or 2,462 points, to date from Thursday’s close of 40,804 points.

Speaking to the Express Tribune, KASB Securities Head of Research Yousuf Rahman said, “The market has dropped in the wake of political developments ahead of the general elections.”

“The market is expecting the rupee to depreciate to around Rs260 against the US dollar in interbank ahead of the resumption of the stalled International Monetary Fund (IMF) loan programme,” he said. The exchange rate is hovering at around Rs228/$ at present.

“Secondly, the market is expecting the central bank to increase its key policy rate by 100 basis points to 17%, as its monetary policy committee (MPC) is scheduled to meet next week on January 23,” he added.

Rahman predicted that the stock market may remain under pressure from time-to-time until the IMF programme is revived and dates for the general elections are announced.

“The sellers are mostly mutual fund companies in the market. Their unit holders are withdrawing investment,” he highlighted, adding that, “Investors are relocating their investments from the stock market to other assets like gold.”

Sales have been witnessed across the board, particularly in the oil and gas exploration firms – which outperformed in recent weeks at the PSX, he said.

Arif Habib Limited Head of Research Tahir Abbas said that the investors offloaded part of their holdings in panic due to the rise in economic instability.

“A large number of industries are reporting partial or complete closure due to a halt in the import of raw material amid an acute shortage of US dollars in the economy,” he said.

The risk of default on international payments heightened when the country’s foreign exchange reserves fell alarmingly to a mere three-week import cover at $4.3 billion at present.

“Revival of the IMF loan programme is a must for the economy. We have no other option to revive the economy at this point. The government’s actions, however, do not support the narrative that it is preparing to resume the loan programme soon,” he said.

“The coalition government is not seen as one ready to risk its political capital to take the tough decisions needed for the revival of the programme. Especially not when all the political parties stand divided on the schedule of the next general elections,” he said.

The fast-developing situation has confused stock market investors. “They have quit the market in haste… on the unstable outlook,” said Abbas.

The IMF has conditioned the revival of its loan programme upon an increase in the price of energy (power and gas), a rise in the rate of taxes and allowing market forces (mostly commercial banks) to determine the rupee-dollar exchange rates.

Finance Minister Ishaq Dar, however, does not seem willing to give up control of the exchange rate as he believes the fair value of the rupee stands in the range of Rs180-200/$.

Data from the National Clearing Company of Pakistan Limited (NCCPL) suggested that mutual funds stood as the single largest seller of stocks on Tuesday. Selling stocks worth net Rs1.10 billion alone, followed by insurance companies offloading stocks worth net Rs835 million.

Banks and Development Financial Institutions (DFIs), however, appeared to be the single largest buyers in the bear market, having bought stocks worth net Rs657 million, followed by individual local investors buying shares of net Rs650 million. Foreign investors bought stocks of net Rs283 million.

The latest trade activities suggested that a section of investors returned to the market from the side-lines, as trade volumes almost doubled to 206 million compared to 106 million shares a day ago in the ready market.

Trade value increased more than double to Rs6.71 billion on the day compared to Rs3.20 billion a day ago.

Of a total 340 active stocks on the board, 281 closed down, 34 closed up, while value of the remaining 25 stocks closed unchanged.

K-Electric appeared to be the top volume leader with almost 30 million shares. It lost Rs0.20 per share to close at Rs2.07 and was followed by WorldCall Telecom with the second highest turnover of 14.5 million shares, losing Rs0.04 to close at Rs1.10.

Sui Northern Gas Pipeline Limited’s share price decreased by Rs2.04 to Rs35.33 with 9.7 million shares at the PSX.

Published in The Express Tribune, January 18th, 2023.

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